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trepidation to his bank manager andwould pose the question, ‘How do I stand for an overdraft?’ And the response was often, ‘You don’t stand, you kneel.’ Getting money out of a bank was akin to getting blood out of a stone. However, over time, the culture and thinking of banks changed with regard to the extension of credit. The eternal battle between the credit department and the sales force came to an abrupt halt with decisions on lending being excessively influenced by the need for growth.
    In the good old days of the 1970s and 1980s, if you required money for a mortgage, personal loan, car or even a holiday, you would put forward a business case on the lines of how much you owed, what your income was, what other liabilities existed and whether you owned other assets. After an in-depth analysis of the request, a response, negative or positive, was forthcoming within a month. Fundamentally, a bank would take into consideration your total financial picture before they would entertain evaluating the risk attached to the repayment. The ability and willingness of a borrower to repay had always to be determined. It was not complex but sometimes it was burdensome and bureaucratic. However, when the approval came through, the customer felt satisfied. The amounts in question here were between £1,000 and £50,000.
    During the 1990s, economic growth, inflation and soaring prices meant there was greater demand for liquidity and credit. An opportunity was apparent in the Irish banking system – lack of competition. Slowly but surely, branches of UK and Australian banks, including UlsterBank, Bank of Scotland (Ireland), National Irish Bank and others, including Barclays and KBC, that did not have branch networks but were active either directly or indirectly in major developmental or investment property transactions, appeared in the Republic. So the multiplier effect in lending was felt. Prosperity led to demands for larger loans in the mortgage and property areas. The traditional methods of evaluating risk by the two large banks, AIB and Bank of Ireland, were maintained as they had been tried and tested and the losses that had been incurred on any single transaction were small, very small by today’s standards. When I left Bank of Ireland in May 2004, the single largest loan loss experienced in the group’s 221-year history was €25 million. How credit standards would become diluted and people’s judgment would become impaired!
    During the period 1991–2007 banks found themselves satisfying the growing demands of their customers for credit. For most of this period, the two major banks employed credit systems that required requests for larger loans to go to their credit committees for approval. This process continued even though it was slow relative to the increasing demands of the customer base. The need for good credit analysis was observed.
    All banks, under the guidance of the Regulator, have risk management committees. The risk management committee has experts in three principal areas: credit risk, market risk and operational risk. In addition to this, a bank has what is called the asset and liability committee (ALCO), theprincipal responsibility of which is to preserve and protect the balance sheet of the bank. This protection is with respect to capital and liquidity in the event of any strains, unexpected or otherwise, that might impair the bank’s ability to perform.
    It should have been a comfort to the shareholders, employees and customers to know that a strong defence in the form of robust and vigilant risk management and ALCO committees were ever present in the banks. While markets around the world became more and more complex with the introduction of sophisticated products such as derivatives, credit default swaps, collateralized debt obligations and structured investment vehicles, these instruments had little direct effect on the performance of the Irish banks and on